Is Digital Bangladesh taking a dive?

Finance Minister AMA Muhith's 12th budget is also his biggest ever. A quarter bigger than the last revised budget, this budget coming in at a whopping Tk 4 lakh 64 thousand crore certainly fits the pattern of double-digit augmentation from year to year with special purse strings reserved for popular mandates like agricultural subsidies, rural infrastructure and social welfare that anyone would expect in an election year. What, however, is a little less scintillating is the fact that the primary futuristic prop of the government—Digital Bangladesh—got left behind in the lurch with an allocation that is a third less than last year's proposed budget. The Tk 2,681 crore allocation for ICT division is still pretty hefty compared to just a couple of years back when it was only around half of this but last year's ICT budget was quite mouth-watering at nearly Tk 4,000 crore.

However, a large part of that had to do with Chinese bilateral development assistance in the form of supplier's credit. A major chunk of the proposed development budget for ICT this year also happens to be funded by supplier's credit from China and India. Such credits are a valid form of development assistance provided the government negotiates provisions for meaningful engagement of indigenous industry players ensuring local job creation, technology transfer and most importantly local sustainability of the projects being implemented. Unfortunately what has transpired over the last three years shows a serious deficit in this area. In fact the humongous projects under implementation under the ICT division may be providing some needed infrastructure being built nationwide but the highly restrictive bilateral credit arrangements of the projects mean that there is hardly any scope for, let me reiterate: local job creation, technology transfer and eventual sustainability. Now that an ICT industry veteran is in charge of the ICT and Telecommunications Ministry, we hope to see a qualitative change in the way such mammoth bilaterally funded projects are implemented.

Even though the lower overall allocation for the ICT division is against the grain of the current government's priorities I am not too concerned. I am certainly much more concerned as to how the two and half thousand crore development budget ensures the triumvirate of jobs (creation), transfer (of technology) and sustainability (of projects). Let's call it the JTS principle. If the ICT Division can manoeuvre the implementation arrangements protecting the fundamental national interest embodied in the JTS principle, then even this curtailed development budget will go a long way in strengthening the local ICT industry and bolstering the real goal of “Digital Bangladesh” which is to enable the creation of a knowledge economy in the country.

I am, however, sad to see that the operating budget for the ICT division has remained almost static (only 2 percent higher than the last revised allocation). When the ICT division was carved out of the Science and Technology Ministry almost nine years back it was a sleepy new government organ with a tiny budget and only one agency under its management. With the Digital Bangladesh thrust of the government the division now manages three agencies and implements projects worth several thousand crore Takas. Obviously, taking care of such increased responsibilities, require much higher managerial and technical capacity than is currently available with the division. There has been some ad hoc infusion of capacity through some of the projects under implementation but that cannot be the solution. The ICT Division needs to enhance the human resource structures for all the agencies under its management and for that it certainly would need much more operating budget allocation than a notional increase.

On the mechanistic aspects of the budget in relation to the ICT sector, a couple of issues come to the fore. To facilitate the growth of and encourage new investment in the IT services sector, the government has exempted income-tax from all IT services firms. In the early stages of this facility circa 2000 it was given as income-tax holiday which required software and ITES service companies to obtain a tax holiday certificate. The process was highly cumbersome and most small firms were bereft of the benefit due to the draconian red-tape and petty corruption involved. From 2007 onwards this facility was extended as income-tax exemption for the IT services sector which made it simpler for IT service companies to enjoy this benefit based on the statutory and regulatory order (SRO) issued by the National Board of Revenue (NBR) in this respect. This facility continued until last year when some organisations started insisting on getting an exemption certificate from NBR to honour the NBR SRO on income-tax exemption for the IT service companies. These organisations claim that NBR advised them to get their IT service providers to obtain some such exemption certificate which not only is a superfluous exercise given the SRO, but also defeats the purpose of the tax exemption in the first place. Tax exemption certificate for IT service companies is a real travesty of a much romanticised income-tax exemption given to this sector till 2024. If the finance minister is as keen as he says he is about the new generation of highly educated and driven IT entrepreneurs giving wings to the “Digital Bangladesh” impetus of the government then he must remove such unnecessary impediments in the way of well-meaning incentives for the IT sector.

The other issue is the utter confusion surrounding VAT on e-commerce and what NBR calls “virtual business”. When you read the relevant sections of the budget it appears there is VAT on all kinds of business carried out on the Internet but any business having no physical stores and doing e-commerce may be exempted. What's that again? How can you do e-commerce without the Internet? Such confusing directives are a bonanza for the field enforcement officers who interpret such rules as they see fit to line their pockets and not to the benefit of the exchequer.

The overall budget for the IT sector of course is not limited by the size of the budget for the ICT Division as all government agencies these days have a budget head for ICT. If we include those then the overall allocation for ICT is pretty healthy but only by keeping the JTS principle in mind while implementing such allocations and removing the irritants in the tax enforcement provisions will we see the desired benefits of digitalisation.

Habibullah N Karim is an author, policy activist, investor and serial entrepreneur. He is a founder and former president of BASIS and founder/CEO of Technohaven Company Ltd.